Using HR—and PEOs—to Improve Business Outcomes

Did you know that 38% of HR leaders report that their HR strategic planning isn't aligned with their business's strategic planning calendar? Gartner also added that changes to HR plans aren't triggered by shifts in business plans. This highlights a critical gap businesses need to address to stay competitive.

Human Resources (HR) plays a key role in driving business outcomes beyond the traditional scope of employee management and administrative functions. When leveraged effectively, HR can boost profitability, speed up growth, improve market share, and strengthen competitive position.

Aligning HR with business strategy ensures that the right people with the right skill set are in a position to achieve business goals. Outsourcing some or all HR functions to a Professional Employer Organization (PEO) can further amplify these benefits. PEOs provide access to specialized expertise, advanced HR tech, and scalability. Partnering with a PEO, like CoAdvantage, lets business owners focus on their goals while ensuring HR strategies align with business objectives.

How Can HR Directly Affect Business Results?

The Society for Human Resource Management (SHRM) cites a hypothetical example of the role HR can play in a small 20-person plumbing company whose workers end up taking unrecorded breaks between jobs: “While it's not HR's role to manage the plumbers, [HR] can conduct time studies to determine how long each type of job should take and develop a guide to help supervisors schedule accordingly.”

In other words, HR is uniquely positioned in many companies to glean insight into workforce behavior across the business, establishing accurate performance benchmarks that can close productivity gaps. In this plumbing company, identifying a schedule can help the organization spot the people taking extra breaks and address the issue with them.

Specifically, How Can HR Affect Revenue?

One study found that the HR function has the power to potentially increase both topline revenues and operating profit. “Not only were we able to establish a clear link between employees and revenue,” the study’s authors write, “but the impact was substantial.”

Specifically, they found that if a store could move from the bottom quartile to the top quartile of employee experience, it would jump from generating $57 in revenue per person-hour worked to $87—a 50% increase. Similarly, that same shift in employee experience drove a 45% increase in operating profits (from $41 to $59 per person-hour). Employee experience is an aspect of the workplace over which HR has disproportionate influence (and, in many cases, direct power).

Another study, this one from McKinsey & Company, has shown that “the HR team plays a crucial role in forming employee experience. Organizations in which HR facilitates a positive employee experience are 1.3 times more likely to report organizational outperformance.”

All of this is particularly impactful for small to midsize companies. "If anything, HR in small companies has more of a role in driving efficiency," Vinay Couto, Vice Chair of Consulting Solutions at advisory group PwC, told SHRM. Smaller businesses "don't have the luxury to have managers think about strategic people management—things like performance management and workforce planning. In those situations, it's even more important for HR to step into the void."

It's not just revenue and profits, either. HR can have an impact in all kinds of areas, including:

Competitiveness and Competitive Advantages.

HR promotes innovation by embracing diversity and inclusion, which can result in new ideas and set your business apart from competitors. Likewise, when employees are highly engaged due to effective HR strategies, it improves customer service and boosts product quality, strengthening your business's competitive edge.

Market Share Expansion.

HR’s ability to attract and retain top talent ensures that the business can innovate and respond to market demands quickly, gaining an edge over competitors. Plus, a strong employer brand, cultivated by HR, attracts high-quality candidates and enhances the company’s reputation in the market, facilitating market share growth.

Speed to Market.

HR helps create a flexible workforce by providing ongoing training and development. This makes it easier to adapt to market changes and roll out new products or services quickly. Additionally, more effective recruitment practices and smoother onboarding processes make sure new hires are productive faster, speeding up project delivery and time to market.

Growth Potential.

HR also impacts organizational scalability. If HR can develop scalable practices that support business growth, such as standardized training programs and succession planning, they can ensure the business can expand without being constrained by talent shortages or skill gaps. PEOs in particular can have a powerful impact here: it’s almost always easier to scale HR operations with access to a PEO’s resources than trying to do it internally.

How Do You Do This? It Starts with Strengthening the HR Function Itself.

To start, HR must be understood as a strategic partner and value driver. As McKinsey writes, “To drive and facilitate these workforce initiatives, HR must transform itself first. The HR function is often overburdened with transactional work and not well equipped to create value for the enterprise.”

That is where a PEO can truly shine. PEO providers offer economies of scale, reducing the overall cost of HR functions. A PEO is especially impactful for smaller to midsize companies, which tend to make up the bulk of PEO users across the country. A PEO relationship allows SMBs to reallocate resources to the core business activities that drive profitability.

In other words, if nothing else, outsource the transactional so internal team members can focus on the strategy. That said, don’t underestimate the power of external HR experts to also help with the process of transforming HR into a bottom-line-boosting value driver.

All of this is indisputably why the use of PEOs is strongly correlated with business growth and improved performance.

“Evidence shows the number of workers employed by PEO clients has grown more quickly than comparison groups,” writes the National Association of PEOs (NAPEO). “This is consistent with the expectation that small business owners that use PEOs and are thus relieved of major administrative burdens associated with HR are better able to focus on their businesses, reflected in the higher employment growth rates for PEO clients relative to their competitors.”

It’s also why PEO users see an annual ROI of 27.2% just from cost savings alone. The same business efficiencies that outsourced HR can create to power these revenue and similar outcomes also make organizations leaner, meaner, and altogether more effective.

In the end, HR simply plays a crucial if under-appreciated role in driving key business outcomes such as profitability, market share, speed to market, growth potential, and competitive advantage. In an always-changing and highly competitive business environment, leveraging HR—with a partner like a PEO amplifying its effectiveness—is essential for achieving sustained growth and long-term success.

Ready to optimize your HR operations and boost business productivity? Consider partnering with CoAdvantage, a nationwide Professional Employer Organization (PEO). With our comprehensive and cost-effective HR solutions, including but not limited to: HR administration, HR technology, workers' compensation management, and tailored health insurance packages. From payroll to compliance and risk management, we've got you covered. 

Let us handle the complexities of HR management so you can focus in growing your business. Fill out the form below to discover how CoAdvantage can support your company's success!